March 22, 2011

Fear, Antitrust, and AT&T

Blawgletter felt in our gut that the AT&T deal with Deutsche Telekom to buy the T-Mobile wireless system would never go through.

Christine Varney, the head of the Antitrust Division in the U.S. Department of Justice, wouldn't stand for it. She threw out a Division report that she saw as too deal-friendly and teamed up with the Federal Trade Commission to make their joint guidelines for judging mergers less deal-friendly.

Neither would Julius Genachowski, chair of the Federal Communications Commission. He's declared himself a friend of consumers and an enemy of too much market power.

Plus just the idea that the biggest wireless firm could gobble up the third-largest in one $39 billion gulp feels so wrong.

News weighs in.

But AT&T''s (and our) home town newspaper, The Dallas Morning News, begs to differ. It came out today in favor of letting AT&T swallow T-Mobile. Its reasons? All revolve around scare-mongering. Behold:

Developing faster and more affordable high-speed networks is to the digital age what railroads, highways, the telephone and electricity were for past generations. Moreover, the ability to move data quickly and affordably is a competitive edge that ultimately translates into thousands of new jobs and more efficient commerce. Today, there are many elements that determine whether mergers are in the public interest. That’s a new-age way of looking at competition — and one that regulators would be wise to factor into their reviews.

So there you go. We need to leave behind "old school" notions of competition and adopt "a new-age way of looking at" it -- the way that focuses on building "high-speed networks" and creating "thousands of new jobs and more efficient commerce" as a result of the merger. Failure to okay the deal would DEPRIVE US OF THE NETWORKS and KILL THOSE JOBS!

Really? How, exactly? A lot of the cost savings come from firing people and closing offices. Thousands of people, dozens of offices. $40 billion worth!

And a stronger AT&T, its number three competitor safely in its belly, will feel less pressure to offer good rates, expand product offerings, and provide good service, which lots of people regard as awful already. Taking the pressure off AT&T to furnish those things will cost jobs . . . and will put more money in AT&T's pockets, mainly at the expense of employees, customers, and suppliers.

What'll happen?

Will the deal pass muster? Put us down as doubtful. We'll likely see a clutch of private antitrust suit against AT&T -- perhaps even one by Sprint -- and very close review by the Antitrust Division and FCC. The pressure may cause a gasket to blow.

But the thing that may undo the pact lies within it. The Stock Purchase Agreement promises, in the event a Governmental Entity doesn't approve the transaction, that T-Mobile gets a "Termination Transfer" of $3 billion plus "the assets set forth on Annex E". (You'll look in vain in AT&T's Report on Form 8-K for Annex E on the company's website.) The assets consist of "a roaming agreement with Deutsche Telekom on terms favorable to both parties and [a] transfer to Deutsche Telekom [of] certain wireless AWS spectrum that the Company does not need for its initial LTE roll-out." Which T-Mobile may conclude, as it reviews its options, beats going the way of Pacific Bell, Ameritech, and Bell South.

Would the death of the deal make T-Mobile stronger? We suspect so. (And a combination with Sprint would do less harm.) And we hope the Termination Transfer proves the poison pill it seems. We don't fear it a bit. Doing it old school!